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Dividends: Great Taste or Less Filling?

NEW YORK ( TheStreet) -- In the mid-to-late 1980s, Miller Lite had one of the best marketing campaigns of all time, where beer drinkers would argue about whether their beer had "great taste" or was "less filling."

The stock market has caused a similar divide among investors -- growth vs. value. I happen to be in the value camp, a group that also appreciates companies like
Apple(AAPL) and
Johnson & Johnson(JNJ) that send out cash every quarter.

On the flip side, you can argue for growth non-dividend payers like
Google(GOOG) and
Netflix(NFLX), where investors don't mind sacrificing near-term profits for a big pot of gold later. And therein lies part of the problem -- one hard to argue against.

While dividend companies often carry higher prestige and offer an element of safety, growth stocks on average outperform dividend stocks. For instance, nobody is going to argue that
Cisco(CSCO) and
Microsoft(MSFT) are safer than Netflix. But Netflix, even with its high cost and weak margins, has posted gains of more than 400% over the trailing 12 months, whereas Cisco has gained 58% and Microsoft 38%. Those are not shabby number, but they trail Netflix by a huge margin.

And I don't believe that there's a Cisco or Microsoft investor who wouldn't return every dividend check they have received in exchange for Netflix's 400% gain. Still, the argument toward dividend payers continues to be that "it's a smarter play." Well, avoiding a stock like Netflix doesn't seem to be so smart.

Dividend shoppers -- myself included -- often pay more attention to valuation. We're not as aggressive as growth investors. And very seldom do we scratch the itch to speculate. That means although dividend investors might not have profited from Netflix's surge last year, they weren't hurt either when Netflix fell from $300 per share two years ago to $52. It works both ways.

Growth investors, which I equate to the "great taste" crowd, shouldn't make the mistake in thinking that dividend investing is just about a quarterly cash payment. There's more to it than that. Not every dividend payer is a great investment. Dividend stocks fall into two categories: those with high yields but poor underlying businesses and those with strong businesses and potential.